Excessive leverage by banks is widely believed to have contributed to
the global financial crisis. To address this, the international
community has proposed the adoption of a non-risk-based capital
measure, the leverage ratio, as an additional prudential tool to
complement minimum capital adequacy requirements. Its adoption
can reduce the risk of excessive leverage building up in individual
entities and in the financial system as a whole. The leverage ratio
has inherent limitations, however, and should therefore be considered
as just one of a set of macro- and micro-prudential policy tools.